California Court of Appeal: PacPizza Can’t Deliver on Arbitration Bid

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On May 1, 2015, the California Court of Appeal, First Appellate District, affirmed a Contra Costa County Superior Court decision denying a defendant pizza restaurant’s motion to compel arbitration in a wage-and-hour class action brought by former employees. Both the trial and appellate courts found that PacPizza had waived its right to arbitration by engaging in extensive litigation for many months before filing the motion to compel. The appellate court’s opinion was certified for publication on June 1, 2015. See Oregel v. PacPizza, LLC, No. A141947 (Cal. Ct. App. May 1, 2015) (slip opinion available here).

Oregel demonstrates what not to do as a defendant that wishes to enforce an arbitration clause. As noted by the Court of Appeal, PacPizza answered two class complaints, attended two case management conferences, negotiated a briefing schedule on a motion for class certification, and propounded and responded to extensive discovery, which included admissions that an arbitration agreement did exist—all without indicating any intent to enforce an arbitration agreement. PacPizza’s motion to compel arbitration was not filed until after the plaintiff’s motion for class certification had been filed, seventeen months after the initial complaint.

Relying heavily on St. Agnes Med. Ctr. v. PacifiCare of California, 31 Cal. 4th 1187 (2003), the trial court and court of appeal found that PacPizza had waived its right to arbitration by: (1) acting inconsistently with that right when continuing with the litigation; (2) engaging in discovery and progressing well into the class certification preparation and briefing stage without indicating an intent to arbitrate; (3) requesting arbitration enforcement only after a long delay; (4) taking advantage of judicial discovery and participating in other procedures not available in arbitration; and (5) affecting, misleading, and prejudicing the opposing party with the delay. Only one St. Agnes factor, regarding cross-complaints, did not affirmatively favor a finding of waiver. Both courts also noted that PacPizza’s delay may have been a strategic ploy to attempt arbitration only if the plaintiff’s class certification motion seemed likely to be granted (the proposed class was later certified by the trial court). As one may expect, this gamesmanship displeased both courts.

Oregel is not a close case of waiver. Rather, it occupies the extreme end of the spectrum where a defendant has engaged in extensive judicial litigation prior to seeking to compel arbitration, which clearly amounts to waiver. Oregel thus joins a growing collection of cases wherein defendants have essentially forfeited their rights to compel arbitration by not doing so soon enough, creating additional work and expense for all involved. This type of dilatory conduct results in waiver because it undermines the traditional policy justifications for contractual arbitration, which are that it saves time and money.

Authored by: 
Jonathan Lee, Associate